Uptick rule

The uptick rule or the plus tick rule is the name given to a former rule created by the SEC to combat short selling.

The rule requires that every short sale is to be entered at a price higher than that of the previous trade. By entering a position with a price above the bid price the order is filled on the uptick. The theory behind it is that it prevents short sellers from adding any downward momentum pressure to a stock.

This rule does not apply to some equities such as futures, currencies, or the market index ETFs (like the SPY) because the larger liquidity is said to stop short selling from playing a big role in the market.

History of the Rule

The rule was first introduced in the Securities and Exchange Act of 1934

In 2006 a study by Alexander and Peterson found no difference between equities subject to the rule and equities not subject to the rule as far as price movement.

On July 6, 2007 the rule was officially eliminated On April 9, 2009 the SEC approved reinstating the rule.

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